Monthly EMI
₹0
Total Interest
₹0
Total Payment
₹0
Month-wise EMI Breakdown (First 60 Months)
| Month | Principal | Interest | Balance |
|---|
Reducing Balance vs Flat Rate
The reducing balance method (also called the diminishing balance or outstanding balance method) calculates interest on the outstanding principal after each EMI payment. Since the principal reduces with each payment, the interest charged also reduces over time.
Formula: EMI = [P × r × (1+r)^n] / [(1+r)^n - 1], where r = monthly rate, n = months
- All RBI-regulated banks and regulated NBFCs must use reducing balance for retail loans
- Effective cost is equal to the quoted rate (unlike flat rate)
- Early months: higher interest portion; later months: higher principal portion
Frequently Asked Questions
What is the difference between monthly reducing and annual reducing?
In monthly reducing, the principal is reduced each month after every EMI. In annual reducing (now rare), principal is reduced only once a year. Monthly reducing benefits the borrower more — resulting in lower effective interest.
Does RBI mandate reducing balance?
Yes. RBI guidelines require all scheduled banks to use the reducing balance method for computing EMI on retail loans including home loans, personal loans, and auto loans.